31 December 2015, Abuja – Foreign exchange scarcity rocking the financial system may not have been over yet, as pending corporate bond debts, particularly banks, and its coupon repayments now pose a greater challenge to the lenders.

Specifically, the nation’s deposit money banks have about $3.4 billion worth of eurobonds issued in the last few years, out of which $1.5 billion will be due for repayment in 2016, coupled with their respective coupons.

Of the $1.5 billion worth of debt repayments next year, one of the banks has bond maturity to settle, while others would settle their maturing bilateral loan obligations.

While there are indications of banks’ ability to meet the coupon repayment obligations, there are likely challenges emerging from the possible sources of the foreign exchange to service the obligations and cost to the banks.

Notably, three major banks have been tangled already with the looming foreign exchange issues come January 2016, to the tune of $500 million, $419 million and $202 million each.

Given the assessed macroeconomic headwinds, with increased borrowing cost for banks by about 200 basis points, which is higher than six months ago, their profitability is also on the line, together with their inability to pass the cost to customers.

Already, the country’s foreign exchange earnings’ profile has not only fallen to a record level due to crude oil price volatility, but seems unending as the crisis persists, with prices inching closer to below $30 a barrel.
“Nigerian banks are dealing with foreign exchange liquidity issues and the challenges show no signs of abating just yet. If anything, it is likely to first get worse before any improvements- making for a weak asset quality and earnings outlook for the sector,” the Sub-Saharan Africa Banking Analyst and Head of Research – Nigeria, Renaissance Capital, Adesoji Solanke, said.

However, it appears not all the banks involved are ready to face the looming challenge next year, as only one of the banks has identified its strategy for the repayments of the debt obligations.

The bank said it “has sufficient reserves to redeem its debt in 2016,” and there may have been a building up of its reserves for the purpose as it sourced $200 million from a multi-lateral institution this year and has plans to raise an additional amount in excess of $50 million from multilateral finance institutions before the year ends.

Meanwhile, the bank’s management said it might not reissue a eurobond next year, given pricing concerns and market conditions.

Solanke noted that the growing concern by investors in Nigerian banks’ debt is that as oil prices continue to decline, the country’s foreign exchange liquidity situation worsens,
Again, a significant portion of banks’ foreign exchange borrowings were used to fund oil and gas loans, with the companies struggling to access foreign exchange to liquidate their obligations.
“This concern is valid and will remain a topical issue through this cycle. Given the worsening foreign exchange challenges, the sector went another leg down when some banks scrapped the use of debit cards for international transactions.
“This development could become a trend, should the situation persist. This follows the continued reduction by a number of banks of their debit card international spending limits, now to $5000-$15,000 yearly, from $50,000,” he said.

Given that customers’ international transactions create open-ended foreign exchange exposure for the banks, as they have to source foreign exchange to settle with MasterCard/Visa, the apex bank warned lenders to give according to their ability to source them.